A controversial deal between Verizon and four cable companies won federal approval Thursday despite warnings that the collaboration would undermine consumer choice and drive up prices for Internet, phone and television services.
The approval by the Justice Department amounted to an acknowledgment that the federal government had little power to curb steeply rising telecommunications bills for data-hungry Americans, said consumer groups and analysts.
Federal officials imposed several conditions on the $3.6 billion deal in hopes of preserving competition in communities — including much of the Washington area — where Verizon’s FiOS service already battles cable services such as Comcast’s Xfinity for customers.
But the robust digital competition once envisioned by policymakers has failed to develop in most of the nation, leaving a series of dominant regional players offering expensive bundles of services for broadband Internet, phone and television from a single company.
Traditional cable operators dominate that market and, analysts say, are likely to tighten their hold in the years ahead. While competition over delivering television programming is mounting, running broadband lines into homes is so costly that new players struggle to catch up with the existing infrastructure of the cable companies.
“You have an effective monopoly of broadband [Internet] within the country,” said Mark Cooper, research director for the Consumer Federation of America. “The question is, what do you do?”
December’s deal was unusual because it brought together rivals who had been fiercely competing over bringing high-speed service to homes. It allowed Verizon to buy a coveted but unused swath of cellphone bandwidth controlled by the cable companies, which include Comcast, Time Warner, Cox Communications and Bright House Networks. They also inked an agreement in which they agreed to work with Verizon to market each other’s products and share in some research efforts.
Some analysts criticized the deal as amounting to a white flag in Verizon’s development of FiOS, which, since its inception in 2005, was seen as the main challenger to high-speed data services offered by the cable companies. Consumer groups, unions and member of Congress expressed alarm and urged careful scrutiny by the Justice Department and the Federal Communications Commission.
Federal officials concluded that the deal, as initially reached among the companies, would harm consumers by hindering their incentive to compete over price and the quality of their services. But officials balked at calls to block the deal outright because the two sides largely are in different businesses, competing directly to provide a limited set of services in a limited number of markets.
About 19 million American households, mostly on the East Coast, are slated eventually to have access to FiOS. As the Justice Department noted in court documents submitted with the approval Thursday, Verizon announced last year it would sharply curb the rollout of the service because of the high cost of running new wires into homes and businesses, meaning that area of competition was unlikely to expand beyond that.
Federal officials decided to negotiate conditions intended to maintain competition where it already existed and limit elements of the collaboration to 2016, with the possibility of renewal if the Justice Department approves the extension. In areas where Verizon offers FiOS and Comcast offers Xfinity, for instance, neither can market the other company’s services.
The time limit on elements of the deal also would allow Verizon to resume expanding its FiOS network if the economics of the business changed.
“We’re always concerned about competition,” said Joseph Wayland, acting assistant attorney general for the antitrust division. “That’s why we have imposed these conditions.”
Comcast Executive Vice President David L. Cohen issued a statement saying, “We are pleased that the consent decree that we have negotiated with the Department of Justice preserves the most important goals of the agreements.”
Verizon said in a statement, “We believe we have addressed the Department of Justice’s concerns. We now believe the consumer benefits of the transaction will be promptly realized.”
(The Washington Post Co. operates cable systems in parts of the country; they are not part of the deal with Verizon.)
The FCC must also approve the deal, though it worked closely with Justice officials in developing the conditions announced Thursday, as did the New York state attorney general. The FCC is expected to approve Verizon’s plan to sell to T-Mobile some of the cellphone bandwidth acquired in the cable deal and also to offer roaming to other cellphone companies, according to people familiar with the matter.
Thursday’s Justice Department action won applause from analysts and some members of Congress, who said the new conditions would limit the most worrisome elements of Verizon’s new relationship with the cable companies. But it did not entirely satisfy the loudest critics of the Verizon deal, who complained that federal officials need to be aggressive in ensuring competition for services increasingly deemed essential by Americans.
“Without meaningful competition for broadband, the cable companies will be able to charge whatever they want — and drive consumers to purchase expensive bundles of services they don’t want or need in order to get Internet service,” Sen. Al Franken (D-Minn.) said in a statement.
Rep. Edward J. Markey (D-Mass.), who had also expressed concerns about the Verizon deal, issued a statement praising the new limits and saying, “As with any significant change to the communications landscape, vigorous oversight of implementation is essential to ensure that consumers benefit, competition is promoted and innovation is ignited to the benefit of our economy and job creation.”
The approval of the Verizon deal may prompt calls for more aggressive regulation of the telecommunications industry. The failure of competition to develop over broadband service in most of the country revealed the limits of the federal government’s approach to protecting consumers from a rapidly changing but increasingly crucial industry.
Analysts said there was little the Justice Department or FCC could do to encourage more competition if Verizon was not committed to expanding FiOS. Cable companies, meanwhile, have failed to move into wireless phone services. The landmark 1996 Telecommunications Act envisioned both industries gradually moving into the strongholds of the other, but that has proven daunting to both sides.
“Cable’s infrastructure has essentially won the war on the ground,” said analyst Craig Moffett of Bernstein Research. “At the same time, the wireless companies have won the war in the air.”